Popular ‘TG25’ gilt matures – where to look next

A popular gilt matured over the weekend, depositing £100 per gilt owned into the accounts of holders.

The UNITED KINGDOM 0.625 07/06/2025 (LSE:TG25) gilt matured on 7 June, paying its final semi-annual coupon and returning its par value, which was the amount the government borrowed per gilt.

The gilt was issued in June 2019 when interest rates were very low. This meant that the 0.625% coupon has recently been below market rates, which caused the price of the gilt to fall, so that its yield was in line with market yields.

The price of the gilt dropped from around £102 in September 2020 to £91 in September 2022 as interest rates rose.

However, gilt holders know that the price will return to the £100 redemption value as it nears maturity, meaning they can lock in a fixed return if they hold on.

This return of £100 on maturity is free from capital gains tax, meaning that the difference between the purchase price of the gilt and the redemption value is tax-free. However, coupons are taxed as income.

What to buy now?

For short-term savings, look for gilts maturing when you want your money back, like in two or three years’ time. Holding a gilt to maturity means you don’t have to worry about price swings, as you know that the gilt will return to its par value when it matures. The UK government has never defaulted on its debt.

For example, UNITED KINGDOM 0.125 30/01/2026 (LSE:T26)matures in January 2026, UNITED KINGDOM 0.125 31/01/2028 (LSE:TN28)matures in January 2028 and UNITED KINGDOM 0.25 31/07/2031 (LSE:TG31)matures in July 2031. All have low coupons, meaning they trade at below their £100 redemption value. The yield to maturities are around 4%. This is the expected annual return if held to maturity, assuming coupons are reinvested.

If you want more of the return to come from coupons rather than capital appreciation, then look for gilts with higher coupons. These include UNITED KINGDOM 4.125 29/01/2027 (LSE:T27A)(4.125% coupon) and 4½% Treasury Gilt 2042 (LSE:T42)(4.5% coupon).

• What to do when your gilt matures 
• Top 10 gilts: all the data you need

Gilts or a gilt fund?

For those looking for a short-term savings tool, similar to a fixed-rate bond your bank might offer, then a direct gilt, maturing soon, is likely the best option.

The most-popular gilts on our platform are those maturing in the next five years, giving investors an achievable holding period that they can stick to.

For investors looking for the diversification benefits of bonds, where values could rise when equities are falling, then a bond fund might be more suitable. This is because its price will rise and fall with market conditions, and holding to maturity is not an option.

A diversified bond fund will own a mix of maturity dates, but the overall sensitivity to interest rates, know as “duration”, will likely be higher than a gilt maturing soon.

This can be a good thing when interest rates are falling, but a negative thing when they are rising.

For example, over the past five years, the Vanguard UK Government Bond Index has delivered a total return of –31.2%, while the T26 gilt has moved from around £100 to £98, hitting a low of £88 at the end of 2022.

The bond funds our fund research team recommend on our Super 60 list of investment ideas include: Vanguard Glb Corp Bd Idx £ H Acc (BDFB5M5), Vanguard UK Government Bond Index, Invesco Sterling Bond, Royal London Corporate Bond, and Jupiter Strategic Bond.